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Who knows where the time goes?

Einstein famously said that the distinction between past, present and future is only a stubbornly persistent illusion. The nature of time is not an easy concept to grapple with and I had a similar (albeit not quite so ethereal) experience preparing a recent seminar on the practical effect of the decision in Carillion Construction v Emcor Engineering Services relating to contiguous (or rather non-contiguous) extensions of time.

The Court of Appeal judgment notes that counsel had said that they had carried out extensive research of law journals including overseas authorities, but had not found any relevant material. Einstein might have said that the only reason they hadn’t found anything of relevance was that they were unable to read judgments of cases not yet reported! Einstein might well have been right. I have a feeling that we have not heard the last word on this topic.

Understanding the concept

Although Carillion v Emcor was about sub-contract extensions, the underlying concept is (at least to me) easier to understand in the context of main contracts. Consider the position of a main contractor who, faced with a tight programme, has negotiated a reduced level of liquidated damages for the first few weeks after the contractual completion date. For example, the contract period might be 60 weeks followed by liquidated damages for each week after that period, but the damages for weeks 61, 62 and 63 are at a reduced level.

The contractor is running late, as anticipated. It is week 63 and the work is almost done. But, at the last minute, there is a further week’s delay and the project is finished at the end of week 64. The cause of delay was one that entitled the contractor to an extension of time. However, based on current practice, the week’s extension will be contiguous. In other words, a week is added to the original programme such that the completion date will be at the end of week 61 rather than week 60. But that’s not fair, complains the contractor. Finishing on time was always going to be difficult, hence the reduced liquidated damages in the three weeks after the contract completion date. I agreed that, if I was up to three weeks late, I would pay only the reduced level of damages. My extension of time should be applied to week 64 so that my exposure to liquidated damages remains at the lower level. Otherwise the employer gets a windfall by taking the higher rate of liquidated damages for a week’s delay that was not my responsibility.

Application to other contract forms

As mentioned before, the Carillion case was about a sub-contract and turned on an interpretation of the extension of time clause in an amended DOM/2. Jackson LJ said that he was troubled by the anomalies that might arise from contiguous extensions, but that this was not sufficient to displace the natural meaning of the words used, which was that a contiguous extension should be granted. He said that it was “not surprising” that the question of a non-contiguous extension had never been brought before the courts in relation to main contracts. He thought that this might be because liquidated damages are normally levied at a single rate per week or per month, so it would make no difference whether an extension of time is contiguous or non-contiguous. Whether this is sufficient to infer a different meaning from JCT main contracts in the example given above remains to be seen. The wording of the extension of time clause is similar to the Carillion wording, but the context is different. The NEC wording is different from the JCT wording, but it still points towards contiguity, focusing, for example, on “the length of time that due to the compensation event, planned Completion Is later than planned Completion as shown on the Accepted Programme”.

Mark Twain said that writing was easy and that:

“…all you have to do is cross out the wrong words”.

I wonder whether we will see drafting that creates non-contiguous extensions of time. Another approach might be to provide for liquidated damages to be deducted non-sequentially. A separation of the extension of time from its financial consequences was considered by Jonathan Cope in Blog post, Time for assessment of delay damages against sub-contractors, in which he said that:

“…despite always finding that extensions of time should be contiguous (regardless of whether I am considering a main contract or a sub-contract), I have always assessed prolongation costs in respect of the actual period of delay”.

My conclusion at the seminar was to “watch this space”. But I would welcome any comments from those brave enough to predict where the time goes.

The example is an odd one. If the purpose of the reduced LD rate was to give the Contractor an effective grace period you would expect that the change in rates would be linked to the date for completion, so it would be pushed out by the EoT.

Only if the uplift in LDs was pegged to a fixed calendar date would the circumstances described above occur. This is something that would typically be done if the employer’s cost / risk rises after that 3 week period and would probably need pretty clear wording to effect. In that case there is no employer ‘windfall’ because the uplift reflects the increase loss (although the contractor would not see it that way).

Perhaps of more interest is the not uncommon example where partial possession reduces LDs. If a delay event occurs after partial possession, should the contractor be relieved from the full LDs or the reduced LDs applicable at the time of the delay? The former approach could result in the bizarre position that a late delay event could oblige the employer to refund LDs to the contractor in respect of losses actually incurred by the employer that were genuinely due to the contractor’s default.

Some contract forms deal with this by suspending liability for LDs for the duration of the employer delay in this situation – effectively giving relief at the lower rate.